At the top, there are 3 pairs of radio buttons, namely:
a) experience (2014 or 2018a); b) number of random scenarios considered (10,000 or 2,000); c) expected return multiple of yield. On the right, there are 4 pairs of radio buttons on the right, in the following order:
1. contract (annuity or endowment); 2. benefits inflationprotected (“Y” or “N”); 3. assets portfolio 4. statistic of interest (mean, standard deviation, highest 5.0% and lowest 5.0%). At the end of the contract term, our precise financial objective is either zero (for the annuity) or 10,000 real/nominal (for the endowment). To achieve that result, by how much must we adjust the initial pricing discount rate?
For a fully inflationprotected endowment fully invested in conventional bonds, the MtM approach would have required an adjustment of 0.51% pa, whereas the Off approach would have required an adjustment of 0.08% pa (see chart). I am not suggesting that marktomarket is always worse than offmarket but it mostly is; see a few extracted figures.
